Document Type


Publication Date

January 2019

Publication Title

Economics Bulletin




This paper examines the impact of the Great Recession on the relation between earnings surprises and stock returns and examines the role that informed and uninformed investors play in the formation of the post-earnings announcement drift (PEAD). We use quarterly earnings surprises (SUE), firms' standardized unexpected returns, calculated as actual earnings minus expected earnings, scaled by stock price one day prior to the earnings announcement, and one-year future stock returns, the subsequent twelve-month abnormal stock returns, calculated as the difference between the firm's buy-and-hold return and the value-weighted market buy-and-hold return, to test whether the Great Recession had an impact on PEAD using multivariate analysis. We document that the Great Recession had a significant impact on PEAD. Specifically, we find that PEAD disappears or inverts during the Great Recession. This provides evidence in support of the ideas developed in the prior literature that informed investors play a significant role in the formation of PEAD. Wall Street institutional and even individual investors would find this study useful in their arbitrage decision making processes.


This article was originally published in Economics Bulletin, volume 39, issue 2, 2019, and can also be found online at this link.